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Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment

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Author Info
Robin Burgess
Rohini Pande ()

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Abstract

Lack of access to finance is often cited as a key reason for why poor people remain poor. This paper uses data on the Indian rural branch expansion program to provide empirical evidence on this issue. Between 1977 and 1990, the Indian central bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four locations with no bank branches. We show that, between 1977 and 1990, this rule caused banks to open relatively more rural branches in Indian states with lower initial financial development. The reverse was true outside this period. We exploit this fact to identify the impact of opening a rural bank on poverty and output. Our estimates suggest that the Indian rural branch expansion program significantly lowered rural poverty, and increased non-agricultural output.

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Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 04/104.

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Length: 50 pages
Date of creation: Jun 2004
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Handle: RePEc:bri:cmpowp:04/104

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Related research
Keywords: finance and development; rural banking; bank licensing; credit constraints; structural change; diversification; redistribution; poverty; growth;

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Find related papers by JEL classification:
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
G2 - Financial Economics - - Financial Institutions and Services
H1 - Public Economics - - Structure and Scope of Government
H4 - Public Economics - - Publicly Provided Goods
I3 - Health, Education, and Welfare - - Welfare and Poverty
N2 - Economic History - - Financial Markets and Institutions
O0 - Economic Development, Technological Change, and Growth - - General
O1 - Economic Development, Technological Change, and Growth - - Economic Development
O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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References listed on IDEAS
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